BHP Billiton has concluded the sale of its U.S. shale oil operations to BP and Merit Energy, a local U.S. oil independent, for US$10.8 billion, ABC reports, quoting BHP’s chief executive Andrew Mackenzie as saying the sale aimed to maximize value and boost returns to shareholders.
In fact, the sale was prompted by activist investor Elliott Management, which has been nagging BHP to exit U.S. shale for over a year now. BHP bought the shale assets as part of its takeover of Petrohawk Energy and, separately, from Chesapeake Energy back in 2011, paying north of US$20 billion for them.
The selling price is obviously substantially lower than this, but the time to offload the assets, according to analysts was right, with shale oil production on the rise prompted by higher international prices. The time to buy them, one analyst noted to Reuters, was wrong, on the other hand, with the shale patch booming and asset prices through the roof.
Besides the high price for the assets, BHP has been booking substantial writedowns on these assets over the last few years, thanks to the 2014 sector downturn. This eventually led to Elliott Management losing its patience and insisting that BHP ends its U.S. shale venture. Before the end, however, BHP will this year book another US$2.8 billion (A$3.8 billion) in after-tax impairment on the carrying value of the operations.
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BP will buy BHP’s assets in the Eagle Ford, Permian, and Haynesville in two transactions for a combined US$10.5 billion. The rest of the assets, in Fayetteville, will go to Merit Energy.
For BP, the deals are a great opportunity to expand its footprint in the shale patch, even “transformational” as CEO Bob Dudley called the acquisition, which, Reuters notes, is its first after the 1999 acquisition of Atlantic Richfield Co. The BHP assets will boost BP’s U.S. onshore oil and gas resources by as much as 57 percent.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.